Citadel LLC and CQS (U.K.) LLP are among global hedge funds providing refuge to managers in Asia as smaller firms struggle to raise money.
Agus Tandiono returned to Citadel, the $13 billion firm run by Kenneth Griffin, in January following the closure of a fund he managed, said a person with knowledge of the move. Sanjiv Bhatia joined CQS, which oversees $11.6 billion, after winding down his Hong Kong-based fund in December.
Asia-focused managers have struggled to gather capital as market volatility increased and clients became more selective following the global financial crisis and the Bernard Madoff scandal. Investors directed almost 80 percent of new capital to hedge funds overseeing more than $5 billion in the 15 months to March, according to Hedge Fund Research Inc.
“Unless you get to $100 million pretty early on, it’s very hard now to survive,” said Richard Johnston, Hong Kong-based Asia head of Albourne Partners Ltd., which advises investors on hedge funds and other alternative investments. “You’re better off working at a big multistrategy fund or platform manager.”
Of 308 Asian hedge funds started since 2009, 74 percent have failed to boost assets “significantly,” according to Eurekahedge Pte. Of those funds, 51 have been liquidated, according to the Singapore-based research firm, which tracks 1,314 hedge funds that focus on the region or are based in Asia and have a combined $128 billion in assets.
Competition for capital intensified in Asia as more hedge funds were set up to take advantage of the world’s fastest growing economies. Potential clients have held back after funds suffered two of their worst years in the past four years amid Europe’s sovereign debt crisis, concerns that the U.S. economic recovery is faltering and a slowdown in China.
“There is no doubt that the break-even level for funds has risen and startups need to manage their cash flows carefully whilst proving to potential investors that they have enough of an institutional infrastructure,” said Mark Wightman, global head of alternatives strategy at SunGard, a provider of trading systems for financial firms, in Singapore.
Direct allocations from institutions such as pensions and endowments now account for a larger share of the inflows into hedge funds, and they tend to prefer bigger and more established managers, said Max Gottschalk, co-founder of Gottex Fund Management Holdings Ltd. in Hong Kong, which allocates $7.6 billion to hedge funds.
Managers are further pressed to build and maintain large investment and operational teams, and systems to meet the more stringent demands of institutional investors, he said.
An estimated 775 hedge funds globally closed down last year, 4 percent more than in 2010, as institutional investors directed most of the new capital toward the largest managers, according to Chicago-based HFR data.
Tandiono started the first equity fund for Income Partners Asset Management Ltd. in July 2009, as the manager of debt and macro funds attempted to widen its offerings. The $25 million fund closed mid-2011 because “it was very difficult to raise money,” said Francis Tjia, a managing partner at the Hong Kong- based company, which has $1 billion in assets.
Tandiono, 40, first joined Citadel in early 2006 as an analyst and became the head of Asia equities later that year. He left in 2008 when the Chicago-based hedge fund reorganized in the region. Devon Spurgeon, a spokeswoman at Citadel, declined to comment. The person familiar with Tandiono’s hiring asked not to be identified because the information is private.
Bhatia, a former trader and risk manager at Goldman Sachs Group Inc. (GS:US) in London and Hong Kong, left Minneapolis-based Deephaven Capital Management LLC in July 2008 to start Isometric Investment Advisors Ltd. Bhatia, 41, said he closed the hedge fund in December after FRM Capital Advisors Ltd. in London, which accounted for about 80 percent of his fund’s assets, decided to invest its money elsewhere.
Investors added $18.3 billion of new capital to managers with at least $5 billion of assets in the first quarter, data from HFR show. Smaller managers with assets below that threshold suffered a combined outflow of almost $2 billion.
About 62 percent of the Asia hedge funds tracked by Eurekahedge oversee $50 million or less.
Still, some managers will seek to capitalize on reputations they built at global firms or within investment banks to establish their own funds, said Graham Seaton, Hong Kong-based Asia-Pacific head of prime brokerage at Bank of America Corp.’s Merrill Lynch & Co. unit.
“They may feel more able to generate alpha with smaller assets under management and more nimble strategy,” he said, referring to the excess return funds earn over performance benchmarks such as a stock index. “The other attraction is to have their own names on the door.”
Other managers seeking sanctuary at big firms include Anthony Correa, who in April 2011 closed Black’s Link Capital Ltd., the Hong Kong-based fund he co-founded. Correa is now heading the Asian operations at Taconic Capital Advisors LP, a New York-based hedge fund with $7.8 billion in assets, said a person with knowledge of his position, who declined to be identified because the information is private. Prior to setting up Black’s Link, Correa was the Hong Kong office head of London- based Polygon Investment Partners LLP. Correa didn’t answer an e-mail seeking comment.
Hani Abuali in November joined Mount Kellett Capital Management LLC as a Hong Kong-based managing director focused on its Asian equity hedge fund, said Jon Fiorello, New York-based chief operating officer of the $7 billion asset manager set up by two former Goldman Sachs executives. Abuali was a Polygon colleague of Correa’s who co-founded Black’s Link, which oversaw about $90 million.
Justin Pollock, 36, who once managed money for Galleon Group LLC, took a job as a New York-based fund manager focused on Asia at Kingdon Capital Management LLC, which oversees $2.7 billion, in June 2011, said a person with knowledge of the hiring, who declined to be identified as the information hasn’t been made public. The fund he oversaw for Singapore-based CastleBay Capital Management Pte was liquidated in May last year after failing to attract enough capital. Patrick Clifford, a New York-based outside spokesman for Kingdon, declined to comment.
Elsewhere, Masaki Taniguchi, a former Sparx Group Co. (8739) executive who headed the Japanese manager’s Asia business in Hong Kong, rejoined Goldman Sachs’s asset management business in the city as Asia-Pacific head of product development in May.
Ashutosh Sinha, 45, returned to Morgan Stanley (MS:US)’s asset- management unit as a managing director and senior fund manager in February 2011 after Amoeba Capital Partners Pte, the Singapore-based hedge fund he set up with his brother, returned investor money in its stock hedge fund in 2010, citing “tough” industry conditions. Taniguchi, 40, and Sinha’s departures were previously disclosed in company memos.
“The barrier of entry has become higher,” said Gottex’s Gottschalk. “With increased regulation and greater investor needs, it has become a lot more expensive to set up a hedge fund. The difficult fundraising environment has made it even harder.”
To contact the reporters on this story: Bei Hu in Hong Kong at firstname.lastname@example.org; Tomoko Yamazaki in Singapore at email@example.com
To contact the editor responsible for this story: Andreea Papuc at firstname.lastname@example.org